Thursday, April 5, 2018

Higher markets after calming words on trade from the White House

Dow shot up 199 extending  yesterday's gain, advancers over declines 2-1 & NAZ went up a more modest 26.  The MLP index recovered 3+ to the 242s & the REIT index gained 3+ to the 329s.  Junk bond funds did little today & Treasuries were sold.  Oil climbed higher in the 63s & gold pulled back 11 to 1337s as stocks rallied.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil63.89

ZG=FGold 100 oz. Apr 181,339.50

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Stocks rose as White House officials continued to signal that Trump's tough talk on trade won't lead to growth-sapping tariffs.  Gold declined & bonds dropped in most developed markets.  The S&P 500 pushed higher as investors grew more confident the administration's protectionist rhetoric wouldn't result in equally stringent policy.  After 4 days with moves of at least 1%, markets turned calmer ahead of Fri's jobs report.  The $ strengthened for the third time this week, while the 10-year Treasury yield popped above 2.81%.  European equities caught up to the American rebound, surging the most in 2 months as every sector rallied.  The € fell after purchasing managers' data for Feb disappointed.  Asia's major stock gauges all rose, although markets in China & Hong Kong were closed for holidays.  Stocks regained a measure of poise after representatives from the US & China left the door open for a negotiated solution to avoid tariff proposals that aren't set to take effect for several months.  Federal Reserve officials said it’s premature to fully assess the impact of the trade dispute, which is adding uncertainty to an otherwise bright economic outlook.  A board member, Lael Brainard, said trade policy is “certainly something that I take into account, in thinking about risks.”  Facebook (FB) climbed as traders took in stride a company disclosure that data on most of its 2B users could have been harvested improperly by 3rd parties.  Investors are cautiously returning to technology shares after a selloff last month gave momentum to a global equity correction.

Stocks Rise, Bonds Slip as Trump Team Eases Stance: Markets Wrap

The US trade deficit widened by more than forecast to a fresh 9-year high in Feb amid broad-based demand for imports, ahead of Trump administration tarif's that have raised the specter of a trade war.  The gap increased 1.6% in Feb to $57.6B, compared with the estimate for $56.8B, Commerce Dept data showed.  It was the 6th straight month with a wider deficit, the longest streak since 2000.  Imports & exports both registered gains of 1.7%, with the data showing a $1B jump in charges for imported intellectual property that probably reflect a temporary boost from rights fees to broadcast the Olympic Games.  While Pres Trump has vowed to shrink the trade deficit, it may keep growing thanks to rising household spending, strong business investment & tax cuts that are boosting demand for imports.  At the same time, his tariffs on some imported steel & aluminum, along with proposed taxes by US & China on goods from each country, represent a wild card for the outlook & have sparked financial-market swings in recent weeks.  Even before the metal tariffs took effect with exceptions for a number of trading partners, the fees were already making business more difficult for US manufacturers and other buyers.  The Institute for Supply Management said earlier this week that the tariff announcement helped send a measure of raw- material prices paid to an almost 7-year high in Mar, as businesses began stocking up.  Several categories of iron & steel imports showed gains in Feb.  Inbound shipments also included jumps in aircraft, pharmaceutical preparations & furniture and household goods.  Overall, imports advanced to $262B, boosted by capital goods, industrial supplies & materials, & foods, feeds & beverages.  Exports rose to $204.4B, led by industrial supplies & materials, automobiles & capital goods.  Improving global growth & a weaker $ have been supporting overseas sales of American-made goods.  The report also showed the merchandise-trade gap with China narrowed to $34.7B in Feb from $35.5B.  The White House is seeking to cut $100B, or about 25%, from the annual deficit with China.  The goods-trade deficit with Mexico widened to $6.6B from $5.6B & the gap with Europe increased to $15.3B from $15B.  The figures suggest trade may reduce the pace of economic growth in Q1, after it was a substantial drag on the economy in Q4-2017.  Net exports subtracted 1.16 percentage points from Q4 GDP growth of 2.9% on an annualized basis.

U.S. Trade Gap Widens for Sixth Month Ahead of Trump Tariffs

The US & China indicated they’re willing to negotiate on escalating frictions, helping to ease fears among investors that a tit-for-tat trade dispute could derail the strongest global expansion in years.  The White House's National Economic Council Director Larry Kudlow spent much of the day yesterday trying to calm markets after the 2 countries announced tariffs, & said they still have time work out their differences.  “Remember, none of the tariffs have been put in place yet. These are all proposals,” he said, without specifying if talks are planned or how they'd take place.  “We’re putting it out for comment. There’s at least two months before any actions are taken. China by the way did not enact the tariffs.”  China's ambassador to the US, Cui Tiankai, also said his first choice would be to consult the US over trade.  “Negotiations would still be our preference, but it takes two to tango,” he said.  “We’ll always stand for consultation and negotiation, but if others do things in the wrong direction, we’ll have to respond.”  The comments came after China yesterday said it would levy an additional 25% tariff on about $50B of US imports.  The move matched the scale of proposed US tariffs announced the previous day.  The US is allowing 60 days for public feedback & hasn't specified when the tariffs would take effect, leaving a window open for talks.  Pres Trump also downplayed the skirmish, saying on Twitter that “we are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.”  Trump also tweeted that “when you’re already $500 Billion DOWN, you can’t lose,” in a possible reference to America's trade deficit with China.  Figures from the Commerce Dept put last year's trade gap with the Asian nation at $337B.

U.S., China Push Time-to-Talk Message as Trade Tensions Rise

Stocks are extending their gains from yesterday.  A calming message from White House officials can bring out buyers.  However words are cheap & tough decisions by both sides are needed to solve many trade issues.  The trade deficit is not going away soon (described above).  Additionally, the tech sector is under a cloud after its latest selloff.  The chart below shows that the Dow is not far off its lows in the last 10 weeks.  A lot of damage has to be repaired for the market to resume its long term advance.

Dow Jones Industrials

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